Exam 17: Activity Resource Usage Model and Tactical Decision Making

What are relevant costs? How do they relate to decision making?

How is understanding of committed resources and flexible resources important to the activity resource usage model? How does this relate to relevance?

Campbell Company has an annual capacity of 18,000 units. Budgeted operating results for 2016 are as follows: Fixed costs: A foreign wholesaler wants to buy 1,000 units at a price of $40 per unit. All fixed costs would remain within the relevant range. Variable selling costs on the special order would be the same as variable selling costs for regular orders. Required: a. Determine the effect on operating income if the company produces the special order. b. Should the company produce the special order? c. Determine operating income if the customer had wanted a special order of 3,000 units and the company produced the special order. d. Should the company produce the 3,000-unit special order? e. Discuss any nonquantitative factors the company might want to consider when making the decision.

The operations of Mouser Corporation are divided into the Bolt Division and the Nuts Division. Projections for the next year are as follows: a. Determine operating income for Mouser Corporation as a whole if the Nuts Division is dropped. b. Should the Nuts Division be eliminated?

Davidian Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold at its split- off point or processed further. Additional processing costs of specific products are entirely variable. Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows: Which products should Davidian process further?

An irrelevant cost is one that is the same for more than one alternative and has no bearing on future decisions.

Yankton Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $23.50. What is the effect on income if Yankton Industries purchases the component from the outside supplier?

Which of the following costs is relevant to a make-or-buy decision?

Which of the following items would be classified as committed resources (short-term)?

Which of the following items would be classified as flexible resources?

Zildjian Corporation manufactures a single product with the following unit costs for 1,250 units: Recently, a company approached Zildjian Corporation about buying 100 units for $5,100 each. Currently, the models Are sold to dealers for $7,900. Zildjian Corporation's capacity is sufficient to produce the extra 100 units. No additional selling expenses would be incurred on the special order. If Zildjian Corporation wants to increase its profit by $18,000 on the special order, what is the minimum price it should charge per unit?

The following information pertains to the Dallas Churning Company's three products: Assume that the selling price of product F is increased to $8.25 with a reduction in monthly sales to 400 units. Monthly profits will

The activity resource usage model focuses on sorting out the behavior of various activity costs and assess their relevancy.

Figure 17-2 Wannabee Company manufactures a product with the following costs per unit at the expected production level of 84,000 units: The company has the capacity to produce 90,000 units. The product regularly sells for $120. -Refer to Figure 17-2. If a wholesaler offered to buy 4,500 units for $100 each, the effect of the special order on income would be a

Davidian Company uses a joint process to produce products W, X, Y, and Z. Each product may be sold at its split- off point or processed further. Additional processing costs of specific products are entirely variable. Joint processing costs for a single batch of joint products are $120,000. Other relevant data are as follows: Processing Y further will cause profits to

Zildjian Corporation manufactures a single product with the following unit costs for 1,250 units: Recently, a company approached Zildjian Corporation about buying 100 units for $5,100 each. Currently, the models Are sold to dealers for $7,900. Assume there is additional capacity for 60 more units and the firm has to reduce regular customer sales by 40 units in order to contract the special order. There are selling expenses on only the sales to the regular customers. What is the net income if the special order of 100 units is accepted?

Which of the following costs is NOT relevant to a decision to sell a product at split-off or process the product further and then sell the product?

Concierge Industries manufactures 40,000 components per year. The manufacturing cost of the components was determined as follows: An outside supplier has offered to sell the component for $12.75. What is the effect on income if Concierge Industries purchases the component from the outside supplier?

Senior Company currently buys 35,000 units of a part used to manufacture its product at $40 per unit. Recently the supplier informed Senior Company that a 20 percent increase will take effect next year. Senior has some additional space and could produce the units for the following per-unit costs (based on 35,000 units): If the units are purchased from the supplier, $200,000 of fixed costs will continue to be incurred. In addition, the plant can be rented out for $20,000 per year if the parts are purchased externally. Required: Should Senior Company buy the part externally or make it internally?

Leasing or buying a building are examples of resources.